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BYD Company Limited
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=== DCF === BYD Company is valued using a DCF (Discounted Cash Flow) model followed by relative valuation. DCF model is used to value the company intrinsically by projecting its future cash flows. Different line items from the financial statements including revenue, taxes, EBIT, D&A, capex and changes in net working capital are forecasted using available values from the previous 5 years. ย {| class="wikitable" !HKD millions !2018 !2019 !2020 !2021 !2022 !''2023E'' !''2024E'' !''2025E'' !''2026E'' !''2027E'' |- |'''Revenue''' |151,502 |143,075 |173,547 |256,840 |479,772 |642,980 |815,310 |970,590 |1,155,444 |1,375,504 |- |'''''% growth''''' |''0.00%'' |''-5.56%'' |''21.30%'' |''47.99%'' |''86.80%'' |''34.02%'' |''26.80%'' |''19.05%'' |''19.05%'' |''19.05%'' |- | | | | | | | | | | | |- |'''EBIT''' |14,671 |5,099 |11,123 |5,073 |22,435 |31,053 |42,574 |57,351 |61,471 |64,741 |- |'''''% margin''''' | |''3.56%'' |''6.41%'' |''1.98%'' |''4.68%'' |''4.83%'' |''5.22%'' |''5.91%'' |''5.32%'' |''5.32%'' |- | | | | | | | | | | | |- |'''Taxes''' |982 |354 |976 |664 |3,915 |4,330 |4,788 |5,295 |5,856 |6,476 |- |'''''% of EBIT''''' |''6.69%'' |''6.94%'' |''8.77%'' |''13.09%'' |''17.45%'' |''10.59%'' |''10.59%'' |''10.59%'' |''10.59%'' |''10.59%'' |- | | | | | | | | | | | |- |'''EBIAT''' |13,689 |4,745 |10,147 |4,409 |18,520 |26,723 |37,786 |52,056 |55,615 |58,265 |- | | | | | | | | | | | |- |'''D&A''' |11,165 |11,158 |14,067 |17,004 | - |19,641 |21,108 |22,686 |24,381 |26,204 |- |'''''% of sales''''' |''7.37%'' |''7.80%'' |''8.11%'' |''6.62%'' |''-'' |''7.47%'' |''7.47%'' |''7.47%'' |''7.47%'' |''7.47%'' |- | | | | | | | | | | | |- |'''Capex''' | -113,330 | -45,007 | -13,230 | -23,389 | -21,133 |(15,748) |(11,736) |(8,746) |(6,517) |(4,857) |- |'''''% of slaes''''' |''-74.80%'' |''-31.46%'' |''-7.62%'' |''-9.11%'' |''-4.40%'' |''-25.48%'' |''-25.48%'' |''-25.48%'' |''-25.48%'' |''-25.48%'' |- | | | | | | | | | | | |- |'''Changes in NWC''' |114,906 |53,277 |24,093 | -1,849 | -5,741 | -6,447 | -7,240 | -8,131 | -9,131 | -10,254 |- |'''''% of sales''''' |''75.84%'' |''37.24%'' |''13.88%'' |''-0.72%'' |''-1.20%'' |''12.30%'' |''12.30%'' |''12.30%'' |''12.30%'' |''12.30%'' |- | | | | | | | | | | | |- |'''Unlevered FCF''' | -203,382 | -82,381 | -13,109 | -127 |3,128 |37,063 |54,399 |74,127 |82,610 |89,866 |} These parameters are used to calculate the cost of equity (9.51%) using the CAPM (Capital Asset Pricing Model). The cost of debt (5.4%) is also estimated using analysts' expectations. The resulting WACC (Weighted Average Cost of Capital) calculated internally is 9.51%. WACC is used as the discounting factor in order to project the calculated free cash flows and the terminal value to its respective present value. ย The terminal growth rate is estimated to be 1.0% in order to obtain the terminal value. The enterprise value is obtained by summing the present value of free cash flow forecasts and the terminal value. Net debt is deducted from the enterprise value to obtain the equity value. {| class="wikitable" !Assumptions !Value !Explaination |- |'''Risk free rateย (5 year US Bond)''' |4.7% |US 5 Year Treasury Note rate <ref name=":1">https://valueinvesting.io/BYD/valuation/wacc</ref> |- |'''Market risk premium''' |5.2% |Analysts' expectations <ref name=":1" /> |- |'''Levered beta''' |0.88 |Analysts' expectations <ref name=":1" /> |- | | | |- |'''Cost of equity''' |9.8% |CAPM (Capital Asset Pricing Model) |- |'''Cost of debt''' |5.4% |Analysts' expectations <ref name=":1" /> |- | | | |- |'''Shares outstanding (latest reported)''' |2.9 B |BYD 2022 interim report <ref>https://www.bydglobal.com/sitesresources/common/tools/generic/web/viewer.html?file=%2Fsites%2FSatellite%2FBYD%20PDF%20Viewer%3Fblobcol%3Durldata%26blobheader%3Dapplication%252Fpdf%26blobkey%3Did%26blobtable%3DMungoBlobs%26blobwhere%3D1600575229843%26ssbinary%3Dtrue</ref> |- |'''Market capitalization''' |789,501 <ref>https://finance.yahoo.com/quote/1211.HK/key-statistics/</ref> | |- |'''Total debt''' |39,956 | |- |'''Total capital''' |829,458 | |- |'''% debt capital''' |4.82% | |- |'''% equity capital''' |95.18% | |- |'''Terminal growth rate''' |1% |Analysts' expectations <ref name=":1" /> |- |'''Tax rate''' |22.50% <ref name=":1" /> | |- | | | |- |'''Internally calculated WACC''' |9.51% | |} All financial figures for the DCF are reported in HKD (Hong Kong Dollar). As per the currency exchange rate on 28/07/23, 1 HKD is equivalent to 0.13 US Dollars. <ref>https://www.xe.com/currencyconverter/convert/?Amount=1&From=HKD&To=USD</ref> The implied share price for BYD Company is $44.13 (HK$ 344.24), while the closing share price on 28/07/23 was $34.77 (HK$ 271.20). {| class="wikitable" |'''Present vale of FCF''' |262,479 |- |'''Present value of TV''' |710,899 |- | | |- |'''Enterprise value''' |973,378 |- |'''Net debt''' | -28,746 |- | | |- |'''Equity value''' |100,2124 |- |'''Shares''' |2.9 B |- | | |- |'''Current share price (HKD)''' |271.20 |- |'''Current share price ($)''' |34.77 |- |'''Implied share price (HKD)''' |344.24 |- |'''Implied share price ($)''' |44.13 |} Sensitivity analysis is conducted to investigate the impact of WACC ranging from 6.5% and 10.0% and terminal growth rate between 0% and 2.5%. {| class="wikitable" ! rowspan="8" |Terminal Growth Rate ! colspan="10" |WACC |- | |'''6.50%''' |'''7.00%''' |'''7.50%''' |'''8.00%''' |'''9.51%''' |'''8.50%''' |'''9.00%''' |'''9.50%''' |'''10.00%''' |- |'''0.0%''' |$465.53 |$431.79 |$402.57 |$377.02 |$316.39 |$354.50 |$334.49 |$316.61 |$300.53 |- |'''0.5%''' |$497.33 |$458.61 |$425.44 |$396.72 |$329.54 |$371.60 |$349.45 |$329.79 |$312.20 |- |'''1.0%''' |$534.92 |$489.90 |$451.83 |$419.22 |'''$344.24''' |$390.98 |$366.28 |$344.51 |$325.17 |- |'''1.5%''' |$580.03 |$526.88 |$482.62 |$445.19 |$360.77 |$413.13 |$385.36 |$361.08 |$339.66 |- |'''2.0%''' |$635.16 |$571.26 |$519.01 |$475.49 |$379.51 |$438.69 |$407.16 |$379.85 |$355.97 |- |'''2.5%''' |$704.07 |$625.50 |$562.68 |$511.30 |$400.92 |$468.50 |$432.31 |$401.30 |$374.45 |}
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